The Polish "near hedge funds", such as Investor FIZ and Opera FIZ didn't fare much better. But the worst part is their performance this year was highly correlated with the market :(

Chart: Investor FIZ and Opera 3gr vs WIG20; source: stooq.com

Seems one of the better asset management companies in the previous years - IDMSA - unfortunately also employed similar strategy:

Chart: Investor FIZ, Opera FIZ and IDMSA ZZP portfolio vs WIG20

Decoupling was demonstrated by small funds like Opera Alfa-Plus and Gandalf SFIO, but that allowed only for capital preservation instead of accumulation. Opera Alfa-Plus finished the year just 1.24% higher, while Gandalf returned 3.75% (January 4th, 2010 - January 3rd, 2011).

Meanwhile quantitative SuperFund lost -20.2% (SuperFund A SFIO PLN) to conclude its six years of presence on the Polish market more than 22% under the water...

Hedge fund / non-benchmark funds were advertised as market neutral, able to withstand market turbulence. Unfortunately it seems most of them demonstrate unhealthy herd mentality.

Taking into consideration, that the United States spent $698 billion for its military in 2010, that translates into an unprecedented cut by 30% and CAGR of -3.5% over 10 years an average cut of 7% annually.

However, the US military budget was close to "just" $500 billion as close as in 2005, before it shoot to the last year's level of nearly $700 billion.

Nevertheless, the announced military cut can possibly have some significant implications to the economy, for:

Sunday, January 1, 2012

I've been reading today about the analysts expectations for the performance of the stock market in 2012. Surprised by this year's market turmoil, they expect volatility to remain heightened. They expect either side-bound market or further declines, before later increases. The Q1 should give the definitive answer about the direction of the market in the rest of the year. In total, they are much more worried and divided than last year. And - as I wrote earlier - they are not alone.

Let's compare what the analysts were expecting at the beginning of 2011. The consensus on December 24th, 2011, when WIG20 was at 2768.66, was for the market to raise by 10-15%, most probably after expecting correction to 2500 in 2011Q1, possibly to 3300-3500.

In reality, the WIG20 decreased by 22.15% (from the open of 2754.67 on January 3rd, 2011 to the close of 2144.48 on December 30th, 2011). In the meantime, it reached the peak of 2942.39 (i.e. +6.81% from the beginning of the year (BYD) and +6.27% from December 23rd, 2010) on April 8th to fall to 2018.99 (i.e. -26.70% from the BYD) on September 23rd, 2011.

Since it seems, analysts are usually dead wrong, the best strategy would be to take to opposite view to their current predictions.

Hence, we should either expect the volatility to come down and market to go up (scenario 1) or the market to go up at the beginning of the year, before correcting later (scenario 2).

I both cases, the market should finish the year much higher than it's current level: